Optimal management of an ecosystem with an unknown threshold

We consider an ecosystem with two distinct equations of motion that are separated by a threshold value of the state variable. We find that increasing uncertainty (both uncertainty embedded in the natural system and uncertainty of the decisionmaker about the location of the threshold) can lead to nonmonotonic changes in precaution: a reduction in uncertainty can first increase and then decrease optimal precautionary activity. This nonmonotonicity can help to explain why regulators often give conflicting arguments about optimal abatement policies in the face of uncertainty. For example, some regulators argue for an immediate reduction in pollutant loading until uncertainty about the underlying process is reduced while others call for no costly reductions in pollutant loading until the same uncertainty is reduced. These statements can be consistent even if both sides agree on both economic objectives and the system dynamics, but have different priors on the uncertainty involved.     

Optimal Monetary Policy and Sectoral Shocks: Is International Monetary Cooperation Beneficial?

A stochastic general‐equilibrium model is used to explore the welfare effects of optimal monetary policy and the potential benefits of policy coordination. Cross‐country perfectly symmetric shocks in the traded goods sectors and imperfectly correlated shocks in the non‐traded goods sectors are considered. In this set‐up, monetary policy may not be able to achieve efficient sectoral resource allocations within countries and avoid inefficient relative price changes across countries. Welfare gains from coordination are sizable if the shocks to the traded and non‐traded goods sectors are negatively correlated and both sectors are of roughly equal size.     

The process and a simple logic of ‘meso’. Emergence and the co-evolution of institutions and group size

‘Summing-up’ aggregation of micro decisions contrasts with structural emergence in complex systems and evolutionary processes. This paper deals with institutional emergence in the ‘evolution of cooperation’ framework and focuses on its size dimension. It is argued that some ‘meso’ (rather than ‘macro’) level is the proper level of cultural emergence and reproduction. Also Schumpeterian economists have discussed institutions as ‘meso’ phenomena recently, and Schelling, Axelrod, Arthur, Lindgren, and others have dealt with ‘critical masses’ of coordinated agents and emergent segregations. However, emergent group size has rarely been explicitly explored so far. In an evolutionary and game-theoretic frame, ‘meso’ is explained in terms of a sustainably cooperating group smaller than the whole population. Mechanisms such as some monitoring, memory, reputation, and active partner selection loosen the total connectivity of the static and deterministic ‘single-shot’ logic and thus allow for emergent ‘meso’ platforms, while expectations ‘to meet again’ remain sufficiently high. Applications of ‘meso-nomia’ include the deep structure of ‘general trust’ and macro-performance in ‘smaller’ and ‘well networked’ countries which helps to explain persistent ‘varieties of capitalism’.     

Participation as motif in community-based tourism: a practice perspective

Community-based tourism (CBT) is a diversely interpreted term, which has presented understanding and practice contests. These contests highlight the centrality (or not) of participation in CBT, and even its developmental failure. We attempt to move the conversation away from whether and how much participation exists to focus on emic interpretations of how CBT is experienced. As such, our focus is on how and why communities participate in CBTs, as informed by practice theory. We examine how participation might be understood and explained across three cases from Kenya, namely Il Ngwesi, Lumo Wildlife Sanctuary and Mwaluganje Elephant Sanctuary. The data were obtained through in-depth interviews, participant observation and documented sources. The findings highlighted that CBT was a response to contextual challenges, led by the community elders. Community participation was often through representation, which is interpreted in relation to local practices. Case narratives and thematic analysis demonstrated that community participation appeared across the cases as a recurrent practice, or motif, its different forms influenced by local sociocultural, economic and sometimes political tensions in each case environment. Understanding how community participation takes place in different settings informs possibilities for realizing and enhancing tourism-led community development strategies, freeing participation from apparent Western standards.     

Dynamic portfolio choice with deferred annuities

We derive the optimal life-cycle portfolio choice and consumption pattern for households facing uncertain labor income, risky capital market, and mortality risk. In addition to stocks and bonds, the households have access to deferred annuities. Deferred payout life annuities are financial contracts providing life-long income to the annuitant after a specified period of time conditional on survival. We find that deferred annuities play an important role in household portfolios and generate significant welfare gains. Households with high benefits from state pensions, moderate risk aversion and moderate labor income risk purchase deferred annuities from age 40 and gradually increase their portfolio share. At retirement, deferred annuities account for 78% of total financial wealth. Households with low state pensions and high labor income risk purchase more annuities and earlier. Uncertainty with respect to future mortality rates has the same effect, i.e. household hedge against longevity risks using deferred annuities.     

Increases in Executive Pay Following Privatization

The average chief executive at one of Britain's twelve regional electricity distribution companies experienced nearly a threefold salary increase in the two years following the industry privatization in 1990. It is hard to account for the tremendous pay raises with conventional explanations for executive compensation rates. They are not attributable to increases in managerial talent, because privatization brought virtually no changes in personnel at the top rank. In addition, the salary increases did not coincide with dramatic changes in firm scale, and cross-firm differences in the raises are uncorrelated with stock-market returns and other measures of firm performance. By contrast, salary increases are highly correlated with firms' potential profits (as measured by the administratively assigned price cap). The findings presented here thus provide new perspectives on the determinants of executive compensation.     

The optimal taxation of risky capital income: An elasticity rule

Should risky capital income be taxed like safe income or should tax rates be differentiated? The question is analyzed in a 2-assets model of portfolio choice. Flat tax rates are chosen in order to maximize the investor's expected utility from terminal wealth subject to an expected tax revenue constraint. If lump-sum taxes are not available, optimal tax rates are characterized by an elasticity rule: The relative change in the risk remuneration should be equal to the inverse of the product of two elasticities. One is the output elasticity of capital. The other is the demand elasticity for risky investments with respect to a revenue preserving tax variation.